ii. Ireland as an Intellectual Property Location
Many corporates, especially in the pharmaceutical and e-commerce sectors, establish an intellectual
property exploitation trade in Ireland that is taxable at 12.5%. This base is eroded through the use of
Ireland's intellectual property box. This uses three features of the Irish tax system:
- Tax depreciation for Intangible Assets,
- Relief for withholding taxes and credit for foreign taxes,
- Research and development credit.
Tax Depreciation for Intangible Assets Acquired from Related / Third Party Entities
Tax depreciation is available for the capital expenditure incurred on intangible assets used for the
purposes of a trade of the company. The tax write-off is available in line with the standard accounting
treatment or, alternatively, companies can opt for a 15 year fixed write down of 7% per annum and 2%
in the final year.
Relief is available where the intangible asset is acquired from either a foreign affiliate or a third party
acquisition. Where intangible assets are transferred within a capital gains tax group, the acquiring
company is entitled to claim the allowances provided that capital gains tax group relief is not claimed
by the company transferring the assets.
The definition of intangible asset is very broad and includes patents, brands, trade names, copyrights,
supplementary protection certificates and certain authorisations for the sale of medicines and
associated rights and goodwill which is directly linked to an asset specified in the definition.
Finance Act 2010 broadened the definition of assets qualifying for this relief to include computer
software ("end use" type) acquired for the purposes of its commercial exploitation. Secret processes
or formulae or other secret information concerning industrial, commercial or scientific experience
(whether protected by patent, copyright or a related right) are now also included within the definition
of intangible assets. In addition, Finance Act 2010 allows for certain costs incurred on the application
for the grant or registration of a patent, registered design, design right or invention, trade mark, trade
name, trade dress, brand, brand name, domain name, service mark, publishing title, copyright or
related right to qualify for this relief.
There is no clawback of the relief where the assets are sold more than 10 years (previously 15 years)
after the beginning of the accounting period in which the asset was first provided unless it results in a
connected company claiming the allowances. The company must prepare accounts under IFRS or
Irish GAAP.
The relief is capped at 80% of the trading related income. This cap is an aggregate of both capital
allowances and any related interest expense.
Relief for Withholding Taxes and Credit for Foreign Taxes
In general, Ireland imposes withholding tax on royalty payments paid to non-residents where it is a
patent royalty or one where the royalty is regarded as "pure income profit".
Where Irish withholding tax applies, all of Ireland's double taxation treaties either substantially
reduce or entirely eliminate Irish withholding tax on royalties paid to a non-resident treaty jurisdiction.
Furthermore, relief from withholding tax may also be available under the EU Interest and Royalties
Directive in respect of intra-EU transactions.
In addition to the above, Finance Act 2010 has introduced unilateral relief for foreign tax suffered
on royalties received from abroad. This generally results in no further liability to Irish tax arising as
Ireland's tax rates are normally lower than the payer's jurisdiction.
Research and Development Credit
Ireland offers a tax credit equal to 25% of certain incremental research and development ("R&D") expenditure, where the R&D activity is carried on either in Ireland or the European Economic Area. The R&D tax credit is calculated by reference to the in-house R&D costs above the base year spend of 2003. The R&D credit is used to directly reduce the corporate tax liability of the company and where the R&D credit exceeds the corporation tax for the year in which the expenditure was incurred, the excess can be;
- Carried back against prior year tax liability;
- Carried forward indefinitely for offset in future tax years; or
- Be claimed as a refund in 3 instalments over a 33 month period. (The amount of the refund is limited to the greater of either the corporation tax paid by the company for the proceeding 10 accounting periods or the payroll liabilities (i.e. PAYE, PRSI and levies) accounted for by the company in the accounting period in which the qualifying R&D expenditure was incurred).
The R&D credit is also available in respect of expenditure incurred on the construction (including refurbishment) of a building where R&D activities carried on by a company in that building over a 4 year period represent at least 35 per cent of all activities carried on in that building. The credit allowed is in proportion of the use of the building for R&D purposes over that 4 year period. A claw back arises where within 10 years of the accounting period in which the expenditure on the building was incurred, the building is sold or ceases to be used by the company for R&D purposes.
